Is the September 20-21 Federal Reserve meeting now “live”? That’s the question financial markets are debating in the wake of Chairman Janet Yellen’s keynote speech in Jackson Hole, Wyoming late last week.
Market Roundup
She chose to include one passage in her speech that hints at a “Yes” answer. It read: “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”
Vice Chairman Stanley Fischer followed Yellen’s speech up with a television interview, and he too implied that rate hikes are back in play. He said the U.S. economy was “reasonably close to what is thought of as full employment” and that inflation was moving in the right direction (“right” in terms of the Fed’s goal of 2%, anyway).
Then Cleveland Fed President Loretta Mester piled on in a post-Jackson Hole interview with the Financial Times. She said the economy was “resilient” in the face of multiple economic shocks, and that “making another gradual step – there is a compelling case for that.”
So that settles it, right? Well, not exactly. The CME Group’s analysis of federal funds futures trading shows markets are only pricing in a roughly 30% chance of a hike in September, and a 44% chance or so that there will be a hike by the December meeting. A separate Bloomberg analysis puts the chances of a hike at just over 40% by September and around 64% by December.
| Â “We’ve been here what seems like a million times before.” |
Why would the markets be “fighting the Fed,” so to speak? Because we’ve been here what seems like a million times before.
The first inklings of tighter Fed policy came almost three and a half years ago, when former Chairman Ben Bernanke suggested QE would be dialed back. The markets freaked out, forcing the Fed to backtrack on how soon and how fast it would wind QE down.
Then the markets freaked out again after the Fed finally raised rates for the first time last December. That caused the Fed to dial back its plans for tighter policy once again.
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| It hasn’t paid to bet aggressively on an aggressive Fed. |
In other words, investors have been conditioned to expect the Fed to back down repeatedly. It simply hasn’t paid to bet aggressively on an aggressive Fed. Maybe this time it’ll be different. But to get investors to dump all their low-rate plays, and wholeheartedly embrace rising-rate ones, it’ll take an actual Fed hike or wildly strong economic data.
So where do you come down on this whole rate debate? Is the Fed finally going to pull the trigger again? Do you think they’ll do so in September, December, or not at all in 2016?
What does that mean for your investment strategy? Is this the time to dump low-rate investments like utilities and telecoms, and embrace rising-rate ones like banks or cyclicals? Let me know what you’re thinking in the comment section.
Until next time,
Mike
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The drug price controversy was front and center at the website over the past few days, even as some of you also took time out to weigh in on the economy and interest-rate policy.
Reader Rob said: “Mylan is acting more like a drug dealer, getting people hooked on the drug and then hiking the prices. When they state most of the increase is paid by insurance, we all know the American taxpayer will foot the bill for another greedy corporation.”
Reader Paul added: “Any business deserves to make a ‘reasonable’ profit. In addition, in our human nature, we are supposed to help one another out. EpiPen is the opposite – and all about ME versus WE! We do need more competition to suppress the price gouging.”
Reader John also said: “I have to buy EpiPens every year as a healthcare provider, and I am personally irate with this kind of behavior. I hope Mylan gets creamed, but they probably won’t. It illustrates everything that’s wrong with our healthcare system.
“Why the American public puts up with this nonsense is hard to comprehend. Until we remove the private insurance industry as the gatekeeper for our healthcare system and allow the public to negotiate equitable drug prices like every other intelligent democracy on the planet, we’ll continue to get the shaft and see our healthcare costs explode, with or without Obamacare. This has been going on for far too long. Enough!”
Meanwhile, on the topic of monetary policy, Reader Mike said: “At some point the Fed will realize that self-interested savers spend only a fraction of their earnings from savings. When you drive interest rates to zero, you then drive earnings to zero, and you thus drive spending to zero. The debtors don’t have the spare change to spend; they are paying monthly on their loans. So, if you want to help GDP, stop artificially depressing interest rates!”
Reader Mike C. added: “The surface tension that exists between the issues noted in your article, and the pouring in of money from all over the world seeking income/safety in the U.S. markets, is what’s keeping the markets and monetary systems from blowing a gasket. That surface tension will eventually give way, and one side of the tension barrier will overcome the other side.
“My hunch is that the issues noted in your article will take over. The question that needs to be asked now is ‘Where will money go in pursuit of income/safety?’ when all hell breaks loose. My second hunch is that there will be nowhere to go at that point. Thus, for those people (most likely the majority of investors), staying put in cash, or even your long-term investments will be the sanest thing to do.”
Thank you for taking the time out to weigh in on these important issues. EpiPen pricing may be at the center of the current controversy. But I know from both your comments and my own personal experiences that rising healthcare costs (insurance premiums, drug prices, co-pays, etc.) are a major problem we just can’t seem to get under control.
Any other thoughts you’d like to add? Then don’t keep them bottled up. Share them below.
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Mylan (MYL) took another step to quell the furor over the price of its EpiPen drug-delivery system, announcing plans to roll out a generic version in a few weeks. The generic product would feature a list price of only $300, half the price of the current branded version.
The only economic data of note was personal income and spending for July. Income rose 0.4% while spending climbed 0.3%. Both figures were in line with market expectations.
The conflict in Syria continues to intensify, with Turkey losing its first soldier following the country’s recent push across the border. Turkey said it invaded northern Syria to fight ISIS. But it also has a long-standing conflict with Kurdish rebels known as the YPG, who are fighting ISIS forces in the area. That means that two U.S. allies in the region – Turkey and YPG – could end up fighting each other.
Uber Technologies may be a wildly popular way to get around these days. But it’s not a profitable business venture, according to fresh figures provided by the company. The ride-hailing app company lost $750 million in the second quarter after losing $520 million in the first three months of the year. Even though revenue has increased substantially, driver subsidies and other costs have resulted in Uber losing more than $4 billion in its seven-year history.
What do you think about the ongoing controversy over Mylan’s EpiPen drug-delivery system? How about the conflict in Syria? Or, the massive losses Uber keeps racking up? Let me hear about it in the comment section below.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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I work making epipen. No one said anything about a generic around here. They offered a raise of 2.5 percent and the workers said no. Apparently they have trouble with hearing real people’s needs.
Mike
all the talk about int/rate hikes in my opinion is really nonsense’ the only person
that you should pay attn. to is the fed chairman herself and I think her answer to
rate hike is NO
Turkey is definitely going after the Kurd’s and do not forget the Russians are in Syria too . Does that make Syria the Tinder Box for a far Bigger conflict ????
If income rose .4%, but spending rose only 3/4 of that, it seems to mean that recipients are trying to save something of any increase, not spending it as Janet Yellen and others would like to see. We can’t have that, of course. The politicians want everyone except themselves and their big supporters to be dependent on the government which they control. They will certainly look for ways to frustrate any real signs of economic independence among the hoi polloi.
I really find it hard to believe that the feds would raise the rate before the election they don’t want to make Hillary look any worse than she already does if that’s even possible
Let us cut to the bottom of the Fed. What is their CORE function? What is their mandate??
Certainly not to interfere with the free market movements, or to cause markets to spike and contract in volatility bases on declarations and rumors. It is their job to create STABILITY, NOT volatility! Let us give them a rating for their performance, similar than any other institution. On their Mission statement and how successful they implement it I mas give them JUNK status! In fact, the sooner they are liquidated, the better the economy will do on all fronts!
Compliment, pretty intelligent ‘stuff’.. and i do not say that often, honestly.
Having studied the media in relation to markets for well over 30 years, (being ‘headhunted’ by what was the largest company in the world to do so, reporting daily @ 7.00 am to the CEO), and lost all faith in markets and the varied abilities to assess financial reality.. i would like to say, that you would have to be a ‘swivel eyed loon’ to not raise interest rates.
Markets are out of control and failing regulation, since the year 2000, long before Lehman Bros. and the weakness lies in valuations of property & so called Brand values, in relation to pension & trust funds. Not to mention all forms of derivatives which do not belong within the realms of Economics and national budgets directly. Not sure who are the ‘bookies’ stateside, but suffice to say in Britain markets would become far more realistic and economics far more serious if hedge funds, indeed all forms of derivatives found their way into the betting shop like William Hill or Ladbrokes, because the so called ‘sophisticated investor’ .. that is his station in the future, while others proceed to develop serious business of the creative and innovative kind.
Be it a drug or a destination for advertising revenue of the service kind, like tourism, or activities that placate the soul, the reality is that it must be Sustainable to secure long term investment rather than the 20th century ‘fast buck’ mentality and it must be ETHICALLY SOUND..!! or the next smart generation will opt to commit elsewhere .. just like Haldane of the BoE, yesterday in the Guardian, explaining that he does not understand Pension funds and thus chooses to invest in property instead. Personally , i reached that conclusion, back in 1989….
Raise interest rates immediately, or become a ‘swivel eyed loon’ of pure virtual self deception, that believes that QE is the solution.. which is pure DILUTION & delusion!!
But heyho , what do i know.. simple reality;)
I find it extremely alarming that even so called “experts” speak about us being under “full employment” when 94 to 100 million potential workers have given up looking for work because – THERE ARE NOT ENOUGH EPMLOYMENT OPPORTUNITIES!” These talking heads have made me want to throw something at my television the past 8 years when they gloat of 80,000 to 210,000 jobs being created (always, those numbers being scaled down) when the first time unemployment applications tripled and quadrupled those created jobs.
If you know how pharma pricing works, and most of you don’t, you would know that Mylan will make a killing on the ‘lower priced’ generic. Like i said last week, buy this stock now!
There are Too Big To Fail organizations like the insurance companies and pension funds that will be destroyed if interest rates stay low. There are TBTF organizations like Federal, State and local governments, and many large companies, which will be destroyed if rates rise. Whatever the Fed does, it will end badly.
This is a typical poly to get a reaction from the market. This is a conditioning tool used to prepare the market for the eventual raise which will come in December, at the earliest or the first meeting in 2017. I believe 2017, will be the first implemented rate increase.
First off, abandon the thought that you must continuously be invested – there are times when it is best to sit on the sidelines and wait for a clear direction to emerge. The rewards must justify the risk – thin rewards are not worth taking a risk for.
The Fed appears to be spending more energy on keeping everybody guessing what they’re going to do than actually trying to figure out what the best actions are.
With ZIRP and NIRP, savers have been hoarding money and pension fund outflows are having to be directly funded. These negative pressures are suppressing the multiplier effect and are making the ZIRP and NIRP desired result to no effect. When interest rates return to normal, the multiplier effect will get going again, and all those idle bank reserves will get to work. We’ll see a rather fast increase in the money supply (fast in snail-slow economic time). It’ll take years, but the Fed will find themselves on the wrong side of the coming money-supply expansion.
Today’s economic paradigm will become tomorrow’s catastrophe.
Really….you would dump utilities and telecom stocks with their safe dividends and go into cyclicals and consumer stocks with a poor market outlook?i
Hello mike,
I think there is no possible way we will ever get a rate hike before the elections.
The FED wants Hillary as our President and if the Markets starts to waver just a little, They will prop it back up. There will be a lot of Jaw Boning and Good Cop /Bad Cop.
But you will see they will not raise in September and maybe not ever again.
How does Yellen keep her job? What does she “have” on Obama (or Biden)?
We have much brighter turnips in our Canadian fields…..
– just sign me “astonished”.
If the JOB market (Just Over Broke) was @ least 95% ok step up a 2% fed increase. But no choke out what’s left of America, pin the donkey to sink the country i.e. economic suicide.
As for Turkey the name speaks for itself, after buying oil from isis to fund it, nursing isis and help sending weapons? They are a bunch of dumb ass on the battlefields blind folded with hands and feet tied and do not know who nor where the enemy is. Crush the snakes Turkey do not help it, That simple.
Mylan needs to be drug tested for substance abuse for selling generic drugs that expensive, this goes to show Mylan has O.D.
Uber heavenly father have mercy on your investors.
The chart of the VIX is signaling an upcoming sudden shock, and soon. Could it be that the Fed finally does the unthinkable in September?
A little competition would do wonders for Mylan’s attitude. If some clever person came out with a refillable EpiPen so when the Epinephrine goes out of date you just refill it I think they would have a hard time selling theirs for $50.00.
It is obvious that Fed has been procrastinating the hike so that the markets don’t freak out again as they did after the first hike. Since then, US economy is playing hide and seek with unemployment and inflation reports not being steady enough for 2 months consecutive running. If again the unemployment report due next week is not good enough, Fed will again have an excuse of not hiking in September. The underlying factor is that the Fed wants to keep the markets high to give the impression to the world that
Fed and other Central Bank heads in the developed world are doing their duty to improve the global economy with the only ammunition they have is to keep the interest rates low for a long and extended period. But how long? That is the question!.
Will the Fed move? Horsefeathers
The $ percentage of the budget to cover debt interest has climbed from 6% last year to 7% this year. If the Fed jacks up rate well they jack this up as well and we all know the financial picture is bad and why would they want to make it worse? Even if they squeeze through a small .25% increase what comes next? Will the stock market that is being artificially propped up start to wobble you know the stock market that the Fed points to to show how as Donald Trump puts it “Great” things are? It just never ceases to amaze me how the investing world just hangs onto their every empty word. I would be nice to see the Fed up movement gain traction.
I read all the negative articles on Mylan yet not one addressed the fact that its CEO the daughter of a sitting senator has had her pay increased over the last nine years from 2 million to 18 million. Really folks does this register as “OK” with you? Yes Mylan is an example of everything that is wrong with America but moaning and groaning will never solve the problem. They will throw you a fish or two to placate you like the “generic” version of this drug and yes the taxpayer is picking up the bill.
Buy Uber shares
Mike: I believe that there will be a rate hike n December. Janet Yellon is a liberal democrat, she will not jeoperdize the outcome of the election with a rate hike. The December rate hike will be no more than .25%. This rate hike will not help savers who have lost approximately 8 trillion dollars since the beginning of QE. I have mentioned several times that there is no recovery. Since this President has been in office, our economy has only grown an average of 2.2% per year. There is no recovery.h
Face the facts Capitalism is the art of maximizing profits for oneself and those associated. If it appears unfair to others (MYLAN and the Drug Industry Pricing, Healthcare costs, Luxury Car prices, First Class Accommodations, High End Restaurant prices, food, rent, mortgages, etcetera, etcetera, etcetera ) then deal with it! People cry for less regulation, smaller government, until it hits their wallet or affects them personally. Ask yourself if you could charge an outrageous price for something that costs next to nothing to mass produce, and also raise your salary by multiples of millions each year, what would you do? I am not saying this is right but I am saying be realistic about the situation you can’t have your cake and eat it too.
The Fed is composed of a bunch of economic liberals, and that means that they will not raise rates again prior to the elections; actually raising rates last December was too disruptive then, so no repeat now. September is just before the elections, and December is just after the elections; so that tells me that should the Fed try to raise rates in December after the election that then the Fed will be stuffed for not doing so prior to the elections. Standing in the corner the Fed has painted themselves into, Fed talk now is just a smoke screen. They know that and they also know that if Trump were to be elected that then they will have failed and it will be time to showcase a scapegoat; which is why we see all the cheap talk now but no action taken to back it up.
The only thing that might cause a rate increase is the realization that the public isn’t buying the line anymore. I look for a small increase in December and then no more for the next five years, but lots of pretending. In other words more of the same.
Fed policy is a symptom not a cause. We have been living in a fantasy economy since Reagan and nobody’s noticed. Since Reagan we have consumed more than we produce as a Nation every year. It shows up as our budget deficit and trade deficit and nobody cares. The wheels will come off and no one will be more surprised than your average American. Just like in 2008 when one day you’re driving to work and the next day you’re unemployed facing foreclosure with maxed out credit cards and no savings. Tax cuts and spending on everything from welfare to weapons paid for with borrowed monies. The printing presses were spooled up to accommodate our collective need to live beyond our means. Don’t expect sanity or political courage to rear their ugly heads anytime soon. When confronted with the truth the American people will opt for the lies that support their own prejudices. Even while circling the drain they will blame everyone but themselves for their demise.
The Fed says things are hunky-dory in the economy, and there should be growth in the second half of this year, warranting an interest rate hike. Yet, Ford, for example is forced to offer 72 month, zero percent financing across their line, to attempt to rid themselves of overproduction of the 2016 models. And companies such as Mattel, Kraft-Heinz and Kellogg are forced to borrow money to avoid reducing dividends, something that is unsustainable in the long term. Methinks there is a dead rat somewhere in the walls. It is beginning to stink.
Since the DOW 30 stocks have been the green light red light for stocks and that index has been micro managed by the FED associates in Goldman using primarily MCD , HD ,GS and MMM under very light volume trading on its HFT computers, all it will take to crash the DOW is larger selling volumes on those 4 stocks .
That could come at anytime regardless of the FED’s nonsensical word games .
Many present traders are young and naive , have no idea of the risks and when the market breaks which it could do in a very terrifying way and soon they will never want to buy another stock again
The debate over the pricing of the EpiPen has many of your readers calling for government run health insurance as the answer to this matter. Government controls only lead to disaster; we only need to go back to President Nixon and his attempt to cap costs (and remove any hard asset backing of the Dollar) to see what disastrous results that causes. Remove government controls, enhance free market enterprise (competition) and let the market determine interest rates. Freedom!